Landry's Inc. a Houston-based company that owns a full spread of restaurant chains and Downtown Las Vegas and Laughlin's Golden Nuggets, has officially taken ownership of the now-former Trump Marina and will be putting about $100 million into renovating it. Meanwhile, a vaunted plan to allow "mini-casinos" has resulted in exactly zero construction to date. That's exactly what anyone would have predicted when the mini-casino concept was first mooted, and it's a good sign that some operators, at least, see some upside in the market.

First, some history. Steve Wynn's AC Golden Nugget opened in 1980--it was the first Atlantic City casino to be built new from the ground up, not a patch-and-paint job of an existing hotel. Wynn was young, charismatic, and with the help of Frank Sinatra and many others, made the Nugget the Atlantic City casino for high rollers. Wynn was a hero in Atlantic City: one year, he gave all of his managers new cars as bonuses, which made him an absolute legend. But in 1987, frustrated with the regulatory regime, he sold the Golden Nugget to Bally's. If you want to hear a good first-hand account of the change-over, listen to my podcast interview with Roger Gros, who describes the tears shed when Steve left town. The Golden Nugget become Bally's Grand, then The Grand: A Bally's Casino Resort, then the Atlantic City Hilton. [Personal history: My first job inside a casino was working in the Bally's Grand ice cream parlor back in 1989. And I left a ton of quarters in the old Golden Nugget arcade before that. So you could say this was the first casino I spent a substantial amount of time in.]

Across town, Hilton Hotels started building a hotel-casino on the marina in the early 1980s. By 1985, they had it ready to open, with signs installed and matchbooks printed with the Hilton name, when the Casino Control Commission denied the company a license for doing business with Sidney Korshak, a Chicago attorney with reputed mob ties. Donald Trump, who was in the midst of a struggle for control over what became Trump Plaza with Holiday Inn/Harrah's, bought the nearly-finished Hilton and renamed it Trump's Castle. This was both a way for him to expand his casino holdings and for him to strike against Harrah's, whose Harrah's Marina was across the street.

Trump's Castle lasted until 1997, when, after a plan to rebrand it as a Hard Rock casino fell through, it became Trump Marina. For years it was the runt of the Trump Entertainment Resorts litter. Back in 2008 Trump almost sold it for $318 million--it would have become a Margaritaville casino. Landry's paid a cool $38 million and is planning to put $100 million--not the $150 million that was thrown around before the sale became final--into a complete renovation.

So it turns out that, for $138 million, Landry's gets a spiffy "new" casino hotel with about 1,000 rooms, 70 table games, and 2,000 slots (give or take). Considering Encore Beach Club alone cost about $70 million, that seems like a pretty good deal.

And let's compare it to the "mini-casinos" that were supposed to be Atlantic City's savior. I spent a lot of time trying to debunk the idea that the proposed mini-casinos are feasible, let alone will bring the salvation of Atlantic City.

These mini-casinos are limited to 20,000 square feet and can be built with only 200 hotel rooms instead of the previously-required 500. Back in March 2010, when the idea was first floated, I did ran a few cursory numbers and determined that, with casinos that size, the projects would be difficult to keep open if someone waved a magic wand and created them; there was no way that they'd ever be able to pay for their construction. The money just wouldn't be there.

Meanwhile, rumors were flying that certain operators were going to come to town and spend $300 million--no, make that $450 million--on building a mini-casino. In a blog post that would surely make me a modern Nostradamus if I wasn't saying anything that wasn't completely obvious to anyone with a rudimentary knowledge of business and no vested interest in the outcome, I posited a hypothetical scenario: why build a $300 million mini-casino when Trump Marina could be had for $75 million?

This is what I wrote back in 2010:

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So instead of starting from scratch and investing $300 million in a new facility with one-quarter of the revenue potential, why not just buy Trump Marina and renovate it-really renovate, almost beyond recognition? Even if you put $100 million into it, you're still saving money, and you've got a much bigger, better-situated...casino with way more potential upside.

As it turns out, that's exactly what Landry's is doing. And we've yet to see ground break on one of the two now-permitted mini-casinos. And, as I said earlier this year when mini-casinos were approved, "Paying fourteen times the price for less than one-quarter of the footprint is beyond delusional."

Looking around the market, there are still opportunities. Caesars Entertainment has four properties in Atlantic City--about 40% of the market. I'm sure they'd be willing to spin off the Showboat if they could find a willing buyer. In 2011, it doesn't really add anything to the company except more rooms and slots. Bally's/Wild Wild West/Claridge has a huge footprint and lots of potential should the market turn around, Caesars is the prestige brand (and now corporate namesake), and Harrah's is the second-best performer property in town, behind Borgata. So Showboat would probably be available if the money was there, and if it's not already encumbered by a debt agreement.

The Atlantic City Hilton's woes have been well-documented, and with the Tropicana under Icahn's control, that's easily the most vulnerable, and the only one that's officially on the market. Anyone got $30 million burning a hole in their pocket? If you had the money to invest in improvements and marketing, it could be a solid buy.

Basically, what happened to Trump Marina is proof that, if the economics are right, there are still operators willing to invest in Atlantic City--and you don't need mini-casinos to persuade them to dip their toe in the water.

Comments

One footnote: The Hard Rock/Trump's Castle deal fell apart literally the night before it was to be formally announced. Maybe it was the Rank Organization's fault but, if history is any guide, The Donald was probably the one who queered a rebranding deal that might well have changed the property's future for the better, instead of a slow dance to the killing ground (i.e., lowest-grossing casino in the city).

May 24, 2011 7:35 PM
Posted by parchedearth

I hope the GN finds a way to better capitalize on the marina. I always felt the marina could be great with high-roller yachts, party boat excursions, daily rentals, and fishing excursions. If the renovations turn out anything like the downtown Nugget, the triplet with Borgata and Harrah's might have the critical mass to survive PA gaming.

I've been slammed so I've only now been able to read this. Very interesting stuff - thanks Dave.

The AC market is transforming into something new and curious.

May 26, 2011 12:53 PM
Posted by hail2skins

Guess they recently announced that Revel will open in mid-May 2012. I also saw a thread on Trip Advisor where Caesars sent out a survey to AC customers that gave recently-published details about Revel and were asking the likelihood if the guest would frequent/stay at Revel. Is there a possibility that Caesars would make a play for that property?

Might be that they're trying to figure out how to respond. They've got the Pier, but maybe they'd spruce up their F&B to compete.

Though Revel's opening would undercut my argument that Showboat is the CZR property most likely to be sold.

May 27, 2011 5:44 PM
Posted by dave202

Great post Dr. Dave. And very prescient stuff way ahead of your time....

I see Revel being something like the Cosmo is here in Vegas. A very very expensive property that will perform well in a struggling market, but not well enough to pay off the creditors. Revel, like the Cosmo, will be sold at a pretty big discount to one of the bigger companies. Don't think it will be Caesars because they are already overexposed in AC. I still think Wynn could be a buyer or maybe Penn or Pinnacle will come in if the price is right (although the bad feelings surrounding the Dan Lee dedication to AC might prevent the latter from doing a deal).